Home Office Deduction Advice and Tax Tips for Telecommuters

Having a remote job has its perks. Not only do you get to do the work you love and earn a decent wage, but you also get to work from home, too. And if all that weren’t enough, the IRS allows you to make a home office deduction on your tax return as well.

But here’s the interesting part. While an estimated one in five people works from home, which roughly translates into about 26 million Americans, only 3.4 million claim home office deductions. One theory is that taxpayers are reticent to claim deductions for fear that it could cause a potential audit from the IRS. Here are some home office deduction tips that can save you money—and won’t raise a red flag with the IRS.

Your Home Office.

Before you can claim a home office deduction on your taxes, you need to actually have a home office. The IRS is not as much concerned about the size, but rather that your home office is used exclusively and consistently as your place of business. Working in a regular office and taking work home doesn’t necessarily count. Your home office has to be the main area in which you get work done.

But let’s say that you’re limited on space and simply don’t have an extra room to spare to convert into a home office. Well, the IRS isn’t terribly picky about square footage. While you can’t claim your kitchen counter as your home office, you don’t need to have an entire room dedicated to being your home office, either. As long as your space has clear boundaries—and you use it as a home office—you can claim it on your taxes.

And what if your business is done primarily outside of the home? You can still claim a home office if you use the space for admin work, such as billing clients, answering email, or general business duties.

Your Expenses.

After you have your home office set up and are working steadily, you’re definitely going to want to know what you can claim—and what you can’t. The IRS categorizes home office deductions in two ways: direct and indirect expenses.

Direct expenses relate, well, directly to everything pertaining to your home office. Things such as office supplies and computers—even the person you hired to landscape your front yard to make it nice for client visits—all can be claimed.

Indirect expenses are the ones that are pro-rated. Under this category falls bills such as your mortgage, your utility bills, property insurance, and your home alarm system. One tricky part is that you can’t claim your entire home phone bill; you can only claim charges that directly relate to your business.

As you gather your receipts and slowly start to prepare your taxes for 2013, remember to include your home office in your deductions as well. It can save you time (and money!) in the long run.

Readers, do you claim a home office deduction on your taxes? Let us know in the comments section below!